Uber Director Defends Surge Pricing As SXSW Riders Lament It

Jeff Bercovici
,
Forbes Staff
I cover technology with an emphasis on social and digital media.

The annual transportation nightmare that is South By Southwest has made the festival a great place for Uber and other ride-summoning apps to build awareness over the last couple of years. But the city of Austin's prickly stance toward "unpermitted ground transportation services" and the ever-increasing sprawl of SXSW have conspired to ensure that most conversations about Uber focus on its exorbitant peak-hour rates.

It's not a joke, but it's not totally Uber's fault. As CEO Travis Kalanick pointed out on Twitter, Uber can't charge less than $55 a ride for its black-car service without running afoul of city regulations. (To make up for it, the company has been underwriting free rides through UberX, its cheaper car-sharing tier.)

My colleague Kashmir Hill kept tabs on surge pricing levels during her stay in Austin, and despite finding a relatively cheap fare here and there, she noticed that Uber seemed to be "getting defensive" in the face of all the gripes.

And indeed, today brings a detailed defense of surge pricing from venture capitalist Bill Gurley of Benchmark Partners, a member of Uber's board of directors. Gurley runs through the familiar arguments -- surge pricing only applies to a small percentage of rides; Uber's drivers, who are independent contractors, pocket 80% of fares; an expensive ride is better than no ride at all. He also notes that surge pricing is already standard practice in several other industries, even though those industries arguably have less need of it:

With hotels, airplanes, and rental cars, supply is relatively fixed. One cannot build more rooms for New Years Eve, and then take them down. Uber has a problem these companies do not. At the exact time that riders want more availability – Friday and Saturday night, in a bad storm, on New Years Eve – drivers would rather not be driving. You see, while hotel rooms are fixed, Uber’s supply actually shrinks at these times, because the drivers would prefer not to be working at those times either. The exact events that increase demand for needing a driver also cause supply to shrink. In these cases the supply curve is moving left at the exact same time that the demand curve is moving right. As a result the need for a price catalyst to increase supply in the Uber case is vital.

An Uber A Benchmark spokeswoman says Gurley's apologia was inspired not by SXSW but by the introduction last week of Surge Drop, a new Uber feature that alerts riders when prices have come back down after a surge.